UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K/A |
(Amendment No. 1) |
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CURRENT REPORT |
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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August 21, 2015 Date of original report (Date of earliest event reported) |
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November 6, 2015 Date of amendment |
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LifeLock, Inc. (Exact Name of Registrant as Specified in Charter)
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Delaware | | 001-35671 | | 56-2508977 |
(State or Other Jurisdiction of Incorporation) | | (Commission File Number) | | (IRS Employer Identification No.) |
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60 East Rio Salado Parkway, Suite 400 Tempe, Arizona 85281 (Address of principal executive offices and zip code)
(480) 682-5100 (Registrant’s telephone number, including area code)
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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
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o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b) |
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o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
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Explanatory Note
This Amendment No. 1 to Form 8-K amends our Form 8-K filed dated August 21, 2015, originally filed with the Securities and Exchange Commission on August 27, 2015 (the “Original Report”). We filed the Original Report to report our acquisition of certain assets of BitYota, Inc., ("BitYota") a Delaware corporation. As permitted by Items 9.01(a)(4) and 9.01(b)(2), we are filing this amendment to include the financial statements and pro forma financial information required by Items 9.01(a) and 9.01(b).
Item 9.01 Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired.
In accordance with Rule 3-05(a)(1)(i) of Regulation S-X, filed herewith (and incorporated herein by reference) are the following financial statements of BitYota;
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• | Exhibit 99.1 - (Audited) Financial Statements as of and for the years ended December 31, 2014 and 2013; and |
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• | Exhibit 99.2 - (Unaudited) Condensed Financial Statements as of June 30, 2015 and June 30, 2014, and for the six months ended June 30, 2015 and 2014. |
(b) Pro Forma Financial Information.
In accordance with Rule 11-01(a)(1) of Regulation S-X, filed herewith (and incorporated herein by reference) as Exhibit 99.3 is unaudited pro forma condensed combined consolidated financial information of LifeLock, Inc. and BitYota giving effect to certain pro forma events related to the acquisition. It does not purport to project future financial position or operating results of the post-acquisition combined company. The pro forma statements of operations are for the six months ended June 30, 2015 and for the year ended December 31, 2014. The pro forma balance sheet is as of June 30, 2015.
(c) Shell Company Transactions.
Not applicable.
(d) Exhibits.
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Exhibit No. | | Document |
23.1 | | Consent of Independent Auditors (Ernst & Young LLP) |
99.1 | | Financial Statements of BitYota, Inc. as of and for the years ended December 31, 2014 and 2013 |
99.2 | | (Unaudited) Condensed Financial Statements of BitYota, Inc. as of June 30, 2015 and December 31, 2014, and for the six months ended June 30, 2015 and 2014.
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99.3 | | Unaudited Pro forma Condensed Combined Consolidated Financial Information of LifeLock, Inc, and BitYota, Inc. consisting of: pro forma statement of operations for the six months ended June 30, 2015; pro forma statement of operations for the year ended December 31, 2014; pro forma balance sheet as of June 30, 2015; and notes to the pro forma financial statements |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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| | LIFELOCK, INC. |
Date: | November 6, 2015 | By: | /s/ Nicholas W. Robbins |
| | | Nicholas W. Robbins |
| | | Interim Chief Legal Officer and Secretary |
Exhibit Index
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Exhibit No. | | Document |
23.1 | | Consent of Independent Auditors (Ernst & Young LLP) |
99.1 | | Financial Statements of BitYota, Inc. as of and for the years ended December 31, 2014 and 2013 |
99.2 | | (Unaudited) Condensed Financial Statements of BitYota, Inc. as of June 30, 2015 and December 31, 2014, and for the six months ended June 30, 2015 and 2014. |
99.3 | | Unaudited Pro forma Condensed Combined Consolidated Financial Information of LifeLock, Inc, and BitYota, Inc. consisting of: pro forma statement of operations for the six months ended June 30, 2015; pro forma statement of operations for the year ended December 31, 2014; pro forma balance sheet as of June 30, 2015; and notes to the pro forma financial statements |
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITOR
We consent to the incorporation by reference in the following LifeLock, Inc. Registration Statements:
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(1) | Registration Statement (Form S-8 No. 333-184360) pertaining to the Amended and Restated 2006 Incentive Compensation Plan, the 2012 Incentive Compensation Plan, and the 2012 Employee Stock Purchase Plan of LifeLock, Inc. |
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(2) | Registration Statement (Form S-8 No. 333-194740) pertaining to the 2012 Incentive Compensation Plan and 2012 Employee Stock Purchase Plan of LifeLock, Inc. |
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(3) | Registration Statement (Form S-8 No. 333-194741) pertaining to the Lemon, Inc. 2008 Equity Incentive Plan of LifeLock, Inc. |
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(4) | Registration Statement (Form S-8 No. 333-206118) pertaining to the 2012 Incentive Compensation Plan and the 2012 Employee Stock Purchase Plan of LifeLock, Inc.; |
of our report dated November 6, 2015 with respect to the financial statements of BitYota, Inc. included in this Current Report on Form 8-K/A.
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| /s/ Ernst & Young LLP |
Phoenix, Arizona | |
November 6, 2015 | |
Exhibit 99.1
BitYota, Inc.
Financial Statements as of and for the Years Ended December 31, 2014 and 2013, and
Independent Auditors’ Report
BITYOTA, INC.
FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
TABLE OF CONTENTS
Report of Independent Auditors
The Board of Directors of BitYota, Inc.
We have audited the accompanying financial statements of BitYota, Inc., which comprise the balance sheets as of December 31, 2014 and December 31, 2013, and the related statements of operations, cash flows, convertible preferred stock and stockholders’ deficit for the years then ended and the related notes to the financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in conformity with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of BitYota, Inc. at December 31, 2014 and December 31, 2013, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
Phoenix, Arizona
November 6, 2015
BITYOTA, INC.
BALANCE SHEETS
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| December 31, 2014 | | December 31, 2013 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 4,389,713 |
| | $ | 7,017,679 |
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Trade and other receivables, net | 142,700 |
| | 71,269 |
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Prepaid expenses and other current assets | 96,542 |
| | 27,066 |
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Total current assets | 4,628,955 |
| | 7,116,014 |
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Property and equipment, net | 64,836 |
| | 40,627 |
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Total assets | $ | 4,693,791 |
| | $ | 7,156,641 |
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Liabilities, convertible preferred stock and stockholders’ deficit | | | |
Current liabilities: | | | |
Accounts payable | $ | 95,222 |
| | $ | 28,640 |
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Accrued expenses and other liabilities | 175,186 |
| | 202,124 |
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Deferred revenue | 10,980 |
| | 6,442 |
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Total current liabilities | 281,388 |
| | 237,206 |
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Long-term debt | 1,498,750 |
| | — |
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Total liabilities | 1,780,138 |
| | 237,206 |
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Commitments and contingencies | | | |
Convertible preferred stock: | | | |
Series Seed: $0.72 par value, 2,881,940 authorized, issued and outstanding | 2,074,997 |
| | 2,074,997 |
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Series A: $1.745 par value, 6,302,998 authorized, 5,729,998 issued and outstanding | 9,999,993 |
| | 9,999,993 |
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Stockholders’ deficit: | | | |
Common stock, $0.0001 par value, 22,700,744 authorized at December 31, 2014 and 2013, 7,633,333 and 9,000,000 issued and outstanding at December 31, 2014 and 2013, respectively | 754 |
| | 891 |
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Additional paid-in capital | 62,766 |
| | 23,193 |
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Accumulated deficit | (9,224,857 | ) | | (5,179,639 | ) |
Total stockholders’ deficit | (9,161,337 | ) | | (5,155,555 | ) |
Total liabilities, convertible redeemable preferred stock, and stockholders’ deficit | $ | 4,693,791 |
| | $ | 7,156,641 |
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See accompanying notes to financial statements.
BITYOTA, INC.
STATEMENTS OF OPERATIONS
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| Year Ended December 31, |
| 2014 | | 2013 |
Revenue | $ | 377,647 |
| | $ | 182,370 |
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Costs and expenses: | | | |
Cost of services | 135,920 |
| | 76,340 |
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Sales and marketing | 92,713 |
| | 22,880 |
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Technology and development | 3,586,594 |
| | 2,835,966 |
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General and administrative | 336,009 |
| | 220,927 |
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Total costs and expenses | 4,151,236 |
| | 3,156,113 |
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Loss from operations | (3,773,589 | ) | | (2,973,743 | ) |
Other income (expense): | | | |
Interest income | 2,367 |
| | 5,107 |
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Total other income | 2,367 |
| | 5,107 |
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Loss before income taxes | (3,771,222 | ) | | (2,968,636 | ) |
Income tax expense | 800 |
| | 800 |
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Net Loss | $ | (3,772,022 | ) | | $ | (2,969,436 | ) |
See accompanying notes to financial statements.
BITYOTA, INC.
STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
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| Convertible Preferred Stock | | | Stockholders' Deficit |
| Series Seed | | Series A | | | Common Stock | | | | | | |
| Shares | | Amount | | Shares | | Amount | | | Shares | | Amount | | Additional Paid-In Capital | | Accumulated Deficit | | Total |
Balance, January 1, 2013 | 2,881,940 |
| | $ | 2,074,997 |
| | 5,729,998 |
| | $ | 9,999,993 |
| | | 9,000,000 |
| | $ | 891 |
| | $ | 3,856 |
| | $ | (2,210,203 | ) | | $ | (2,205,456 | ) |
Share-based compensation | — |
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| | — |
| | — |
| | | — |
| | — |
| | 19,337 |
| | — |
| | 19,337 |
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Net loss | — |
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| | — |
| | | — |
| | — |
| | — |
| | (2,969,436 | ) | | (2,969,436 | ) |
Balance, December 31, 2013 | 2,881,940 |
| | 2,074,997 |
| | 5,729,998 |
| | 9,999,993 |
| | | 9,000,000 |
| | 891 |
| | 23,193 |
| | (5,179,639 | ) | | (5,155,555 | ) |
Share-based compensation | — |
| | — |
| | — |
| | — |
| | | — |
| | — |
| | 39,573 |
| | — |
| | 39,573 |
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Share repurchase | — |
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| | — |
| | — |
| | | (1,366,667 | ) | | (137 | ) | | — |
| | (273,196 | ) | | (273,333 | ) |
Net loss | — |
| | — |
| | — |
| | — |
| | | — |
| | — |
| | — |
| | (3,772,022 | ) | | (3,772,022 | ) |
Balance, December 31, 2014 | 2,881,940 |
| | $ | 2,074,997 |
| | 5,729,998 |
| | $ | 9,999,993 |
| | | 7,633,333 |
| | $ | 754 |
| | $ | 62,766 |
| | $ | (9,224,857 | ) | | $ | (9,161,337 | ) |
See accompanying notes to financial statements.
BITYOTA, INC.
STATEMENTS OF CASH FLOWS
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| Year Ended December 31, |
| 2014 | | 2013 |
Operating activities | | | |
Net loss | $ | (3,772,022 | ) | | $ | (2,969,436 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | | | |
Depreciation and amortization | 22,283 |
| | 10,752 |
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Share-based compensation | 39,573 |
| | 19,337 |
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Change in operating assets and liabilities: | | | |
Trade and other receivables | (71,431 | ) | | (71,269 | ) |
Prepaid expenses and other current assets | (58,026 | ) | | (16,521 | ) |
Accounts payable | 66,582 |
| | (40,682 | ) |
Accrued expenses and other liabilities | (26,938 | ) | | 146,615 |
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Deferred revenue | 4,538 |
| | 6,442 |
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Net cash used in operating activities | (3,795,441 | ) | | (2,914,762 | ) |
Investing activities | | | |
Acquisition of property and equipment | (46,492 | ) | | (51,379 | ) |
Net cash used in investing activities | (46,492 | ) | | (51,379 | ) |
Financing activities | | | |
Repurchase of common stock | (273,333 | ) | | — |
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Proceeds from debt issuance | 1,498,750 |
| | — |
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Payment for debt issuance costs | (11,450 | ) | | — |
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Net cash provided by financing activities | 1,213,967 |
| | — |
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Net decrease in cash and cash equivalents | (2,627,966 | ) | | (2,966,141 | ) |
Cash and cash equivalents at beginning of year | 7,017,679 |
| | 9,983,820 |
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Cash and cash equivalents at end of year | $ | 4,389,713 |
| | $ | 7,017,679 |
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Supplemental cash flow information: | | | |
Cash paid during the period for: | | | |
Income taxes | $ | 800 |
| | $ | 800 |
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See accompanying notes to financial statements.
BITYOTA, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013
We offer the first ever Massively Parallel Processing (MPP) Data Warehouse Service designed and built from the ground up to deliver high performance computing using virtual machines in the public cloud. We were incorporated in Delaware in August 2011 and are headquartered in Mountain View, California.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP).
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires us to make certain estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience, current business factors, and various other assumptions that we believe are necessary to consider to form a basis for making judgments about the carrying values of assets and liabilities, the recorded amounts of revenue and expenses, and the disclosure of contingent assets and liabilities. We are subject to uncertainties such as the impact of future events; economic, environmental, and political factors; and changes in our business environment; therefore, actual results could differ from these estimates. Accordingly, the accounting estimates used in the preparation of our financial statements will change as new events occur, as more experience is acquired, as additional information is obtained, and as our operating environment changes. We make changes in estimates when circumstances warrant. We reflect such changes in estimates and refinements in estimation methodologies in reported results of operations. If material, we disclose the effects of changes in estimates in the notes to the financial statements. Significant estimates and assumptions affect the following: the carrying value of long-lived assets; the amortization period of long-lived assets; valuation of common stock; the provision for income taxes and related deferred tax accounts, and realizablity of deferred tax assets; certain accrued expenses; contingencies, and the value attributed to employee stock options and other stock-based awards.
We are also subject to the risks associated with a loss generating entity, including the need to further develop its technology, operations, and sales and marketing channels to attain profitability. Successful development of our products and services and, ultimately, the attainment of profitable operations, are dependent upon future events, including its ability to grow our customer base, and develop strategic alliances.
Revenue Recognition
The Company primarily derives revenue from subscription fees to our data warehouse offering. The Company sells subscriptions through contracts that are generally one year in length. The Company’s arrangements do not contain general rights of return. The Company’s subscription arrangements do not provide customers with the right to take possession of the data warehouse offering and, as a result, are accounted for as service arrangements.
We recognize revenue when persuasive evidence of an arrangement exists, delivery of services to the customer has occurred, the price is fixed or determinable, and collection of the service fee is reasonably assured. Subscription revenues are recognized ratably over each subscriber’s monthly subscription period. Deferred revenue consists of subscription revenues billed to subscribers that have not been recognized.
Certain of the Company's revenue arrangements consist of multi-element arrangements. Revenue arrangements with multiple deliverables are divided into separate units of accounting if each deliverable has stand-alone value to the customer. The Company's multiple-element arrangements may include a combination of some or all of the following: data warehouse services, professional services and technical support. The Company evaluates whether the individual deliverables qualify as separate units of accounting. If the deliverables have standalone value upon delivery, the Company accounts for each deliverable separately and revenue is recognized for the respective deliverables as they are delivered. If one or more of the deliverables does not have standalone value upon delivery, the deliverables that do not have standalone value are combined with the final deliverable within the arrangement and treated as a single unit of accounting. Professional services and technical support were determined to not have standalone value.
Cash and Cash Equivalents
Cash includes cash on hand and cash held with financial institutions. We consider all highly liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents. Our cash equivalents consist of money market accounts which are carried at fair value and are considered level 1 financial assets. Level 1 financial assets relate to assets where fair value can be determined using observable inputs such as quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Accounts Receivable
Accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our accounts receivable portfolio. We determine that allowance based upon a review of each receivable and all known factors that affect collectability. These factors include, but are not limited to, past payment performance, the financial condition of our customers, current economic or market conditions, disputes regarding the invoiced amount, or disputes regarding the product or service rendered. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off balance-sheet credit exposure related to its customers. At December 31, 2014 and 2013 there were no amounts reserved for bad debt expense and no bad debt expense was recognized in either of the years ended December 31, 2014 or 2013.
Concentration of Credit Risk
Financial instruments that potentially subject us to a concentration of credit risk consist primarily of cash and cash equivalents. Our deposits cash and cash equivalents with high quality financial institutions. Our cash is denominated in U.S. dollars and is held with financial institutions domiciled in the United States, and the balance exceeds the Federal Deposit Insurance Corporation insured limit.
Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated using the straight line method over the estimated useful lives of the assets, generally three years.
Long Lived Assets
We evaluate its long lived assets subject to amortization for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long lived asset or asset group to be tested for possible impairment, the recoverability is measured by a comparison of the carrying amount of an asset or asset group to future undiscounted cash flows expected to be generated by the asset or asset group. If such asset or asset group is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount exceeds the fair value.
Income Taxes
We utilize the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and the respective tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded when it is more likely than not that the tax benefits of deferred tax assets will not be realized.
Accounting for Uncertainty in Income Taxes
We recognize the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. No liability related to uncertain tax positions is recorded in the financial statements as of December 31, 2014 or 2013. It is our policy to include penalties and interest expense related to income taxes as a component of other expense and interest expense, respectively, as necessary.
Our tax years 2011 to 2014 remain open for examination by the federal and state authorities for three and four years, respectively, from the date of utilization of any net operating loss credits.
Cost of Service
Cost of service include fulfillment costs including cloud computer storage, servers and rack space required to fulfill our service agreements.
Technology and Development
Technology and development expenses consist primarily of personnel costs incurred in product development and developing solutions for new services. Our development costs are primarily incurred in the United States and primarily devoted to enhancing our cloud data warehouse service.
Fair Value of Common Stock
Given the absence of a public trading market, the Board considered numerous objective and subjective factors to determine the fair value of our common stock at each grant date. These factors included, but were not limited to, (i) contemporaneous valuations of common stock performed by unrelated third-party specialists; (ii) the prices for our Preferred Stock sold to outside investors; (iii) the rights, preferences and privileges of our Preferred Stock relative to our common stock; (iv) the lack of marketability of our common stock; (v) developments in the business; and (vi) the likelihood of achieving a liquidity event, such as an initial public offering or a merger or acquisition of BitYota, given prevailing market conditions.
Accounting for Stock Based Compensation
Stock-based compensation is measured at the grant date based on the fair value of the award. The fair value of the award that is ultimately expected to vest is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period. The expense recognized for the portion of the award that is expected to vest has been reduced by an estimated forfeiture rate. The forfeiture rate is determined at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
We use the Black-Scholes option-pricing model as the method for determining the estimated fair value of of stock options issued to employees.
Expected Term
The expected term represents the period that the Company’s stock-based awards are expected to be outstanding and is determined using the simplified method.
Expected Volatility
Expected volatility is estimated using comparable public companies volatility for similar terms.
Expected Dividend
The Black-Scholes valuation model calls for a single expected dividend yield as an input. We have never paid dividends and has no plans to pay dividends.
Risk-Free Interest Rate
The risk-free interest rate used in the Black-Scholes valuation method is based on the U.S. Treasury zero-coupon issues in effect at the time of grant for periods corresponding with the expected term of option.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers, which provides guidance for revenue recognition. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under today’s guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price, and allocating the transaction price to each separate performance obligation. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date, which defers the effective date of ASU 2014-09 for all entities for one year. Consequently, the guidance provided in ASU 2014-09 will be effective for us in the first quarter of our fiscal year ending December 31, 2018. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The guidance permits the use of either the retrospective or cumulative effect transition method. We are currently in the process of evaluating the impact of the adoption of this guidance on our financial statements and have not yet selected a transition method.
In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, which changes the presentation of debt issuance costs in financial statements. The guidance requires an entity to present such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset, with amortization of the costs continuing to be reported as interest expense. In August 2015, the FASB issued ASU 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, which provides that the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs
ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. This guidance is effective for annual reporting periods beginning after December 15, 2016, and will be applied retrospectively to each prior period presented. Early adoption is permitted. We do not expect the adoption of these ASUs to have a material impact on our financial statements.
In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The standard explicitly requires management to assess an entity’s ability to continue as a going concern every reporting period, including interim periods, and to provide related footnote disclosures in certain circumstances. ASU 2014-15 is effective for the annual period ending after December 15, 2016, and for interim periods thereafter, with early adoption permitted. We do not expect the adoption of ASU 2014-15 to have a significant impact on our financial statements.
3. Property and Equipment
Property and equipment as of December 31, 2014 consisted of computer equipment of $64,836 net of accumulated depreciation of $33,035. Property and equipment as of December 31, 2013 consisted of computer equipment of $40,627 net of accumulated depreciation of $10,752.
The total depreciation and amortization expense recorded during the years ended December 31, 2014 and 2013, was $22,283 and $10,752, respectively, recorded in cost of service revenues and operating expenses.
4. Income Taxes
We recorded a tax expense of $800 for both years ended December 31, 2014 and 2013. The income tax amounts recorded in 2014 and 2013 differed from the amounts expected by applying the U.S. federal statutory tax rates to pretax income primarily due to the effect of net operating loss carryforwards for which no financial statement benefit was recorded. The types of temporary differences that give rise to significant portions of our deferred tax assets (liabilities) as of December 31, 2014 and 2013, are set out below:
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| December 31, 2014 | | December 31, 2013 |
Deferred tax assets: | | | |
Net operating losses and credit carryforwards | $ | 4,108,695 |
| | $ | 2,328,557 |
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Property and equipment | 76,132 |
| | 79,728 |
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Accrued expenses | 51,179 |
| | 52,727 |
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Stock-based compensation expense | 15,730 |
| | 7,686 |
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Total deferred tax assets | 4,251,736 |
| | 2,468,698 |
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Valuation allowance | (4,251,736 | ) | | (2,468,698 | ) |
Net deferred tax assets | $ | — |
| | $ | — |
|
As of December 31, 2014, we have net operating loss carryforwards for federal and California income tax purposes of approximately $8.5 million and $8.5 million, respectively, available to reduce future income subject to income taxes. The federal and California net operating loss carryforwards will begin to expire, if not utilized, in 2031 through 2034. Additionally, we have $356,000 of federal and $376,000 of California research and development tax credit carryforwards which will begin to expire in 2031 and 2032, respectively, if not utilized.
Based on the available objective evidence, management believes it is more likely than not that the U.S. federal and California net deferred tax assets will not be realizable; therefore, management has established a valuation allowance for all of the deferred tax assets.
The United States Tax Reform Act of 1986 and similar California legislation impose substantial restrictions on the utilization of net operating losses and tax credits in the event of an “ownership change” of a corporation. Accordingly, the Company’s ability to utilize net operating losses and credit carryforwards may be limited as the result of such an “ownership change” as defined in this legislation.
5. Commitments and Contingencies
Leases
We lease office space under a noncancelable operating lease with a term through October 31, 2017, and an option to extend for a two year term upon expiration in 2017.
The following summarizes the future minimum lease payments for the operating lease as of December 31, 2014:
|
| | | |
2015 | $ | 132,408 |
|
2016 | 136,386 |
|
2017 | 116,480 |
|
| $ | 385,274 |
|
Total rent expense for operating leases was $101,701 and $95,692 for the years ended December 31, 2014 and 2013, respectively.
From time to time, we may become involved in claims and other legal matters arising in the ordinary course of business. We investigate these claims as they arise. Although claims are inherently unpredictable, we currently are not aware of any matters that may have a material adverse effect on our business, financial position, results of operations or cash flows.
6. Financing Arrangements
On November 20, 2014, we entered into a loan and security agreement, or the Loan Agreement, with Silicon Valley Bank. The Loan Agreement provides for a term loan of up to $3 million which can be borrowed at any time prior to September 30, 2015. The term loan has a maturity date of December 1, 2018, with all outstanding principal amounts due on maturity date.
Borrowings under the Loan Agreement bear interest at a per annum rate equal to Prime Rate plus 1.75%. The interest rate increases or decreases when Prime Rate changes.
We have the right to prepay our borrowings under the Loan Agreement from time to time in whole or in part, without premium or penalty, subject to the procedures set forth in the Loan Agreement.
All of our obligations under the Loan Agreement are secured by all our personal property with the exception of our intellectual property.
The Loan Agreement does not require us to maintain certain financial covenants.
7. Stockholders Equity
Presentation
The par value of our convertible preferred stock and common stock is $0.0001 per share. Amounts reported in the accompanying balance sheet for such preferred stock and common stock include the additional paid-in capital associated with each respective series. Both series' of Preferred Stock contain deemed liquidation provisions which can be triggered outside the company’s control, and accordingly, both series' of Preferred Stock are presented in mezzanine equity.
Convertible Preferred Stock
The rights, preferences, and privileges of our Seed and Series A preferred stock as of December 31, 2014 are as follows:
Dividend
Holders of Series Seed and Series A convertible preferred stock are entitled to receive noncumulative dividends at a pro rata basis, based on the original issuance prices of $0.72 and $1.7452 per share, respectively, subject in each case to appropriate adjustment in the event of any stock dividend, stock bonus issue, stock split, subdivision, combination, consolidation, or similar recapitalization with respect to the respective series of preferred stock plus an additional amount on “as converted” to common share basis when, as, and if declared by the board of directors. Holders of Series A preferred stock have a priority of dividends payments over holders of Series Seed. No dividends on preferred stock were declared by the Board for the year ended December 31, 2014 or 2013.
Voting
In general, holders of preferred stock shall be entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter.
The consent of a majority of the preferred stock holders voting separately as a class and on as-converted basis is required to liquidate, dissolve, or wind-up the business and affairs of the Company, effect any merger or consolidation or any Deemed Liquidation Event of consent to any of the foregoing.
The consent of a majority of the Series A preferred stock holders voting separately as a class ) is required to effect the following: (a) amend, alter or repeal any provision of the Certificate of Incorporation or Bylaws of the Company; (b) authorizing or creating a new class of equity securities with rights that are senior to or on parity with any series of preferred stock; (c) increasing the authorized number of preferred stock or any series of preferred stock; (d) purchasing, redeeming, paying dividends on, or make distributions on equity securities other than certain enumerated exceptions; (e) creation or issuance of a debt security; (f) create or own stock in any non-wholly owned subsidiary; (g) increase or decrease the authorized number of directors constituting the Board of Director; (h) increase the number of shares of Common Stock authorized for issuance under the Company's stock incentive plan; or (i) create, sell or dispose of any subsidiary or joint venture, or make any other investment in or acquisition of any other person or entity.
Conversion
Each preferred share is convertible, at the option of the holder, at any time, and without the payment of additional consideration by the holder, into such number of fully paid and nonassessable common stock as is determined by dividing the original issue price for such series of preferred stock by the applicable conversion price in effect at the time of conversion. The conversion prices for the Series Seed and Series A preferred stock are its respective original issue prices, subject to adjustments for certain events. The preferred stock will also be converted automatically into stock of common stock immediately prior to an initial public offering with aggregate proceeds of at least $40 million or upon the date specified by written consent of holders of a majority of the outstanding preferred stock on an as-converted basis.
Liquidation
In the event of any liquidation, dissolution, or winding up of the Company, including a merger, acquisition, or sale of assets, as defined, the holders of Series A preferred stock are entitled to receive an amount per share to the greater of (i) Series A original issue price plus any declared but unpaid dividends or (ii) such amount per share as would have been payable had all Series A preferred stock been converted into common stock immediately prior to such deemed liquidation event. If upon any such deemed liquidation event, the assets of the Company available for distribution to stockholders of the Company shall be insufficient to pay the holders of Series A preferred stock the full amount to which they shall be entitled, the holders of Series A preferred stock shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts, which would otherwise be payable in respect of the Series A preferred stock held by them upon such distribution if all amounts payable on or with respect to such stock were paid in full.
After distributions have been made to all holders of Series A preferred stock in full, the holders of Series Seed preferred stock are entitled to receive an amount per share to the greater of (i) the respective Series Seed original issue prices plus any declared but unpaid dividends or (ii) such amount per share as would have been payable had all Series Seed preferred stock been converted into common stock immediately prior to such deemed liquidation event. If the assets of the Company available for distribution to stockholders shall be insufficient to pay the holders of Series Seed preferred stock the full amount to which be entitled, the holders of Series Seed preferred stock shall share ratably in any distribution of the remaining assets available for distribution in proportion to the respective amounts, which would otherwise be payable in respect of the Series Seed preferred stock held by them upon such distribution if all amounts payable on or with respect to such stock were paid in full.
After the payment in full of all preferential amounts required to be paid to the holders of preferred stock, the remaining assets of the Company available for distribution to stockholders shall be distributed among the holders of common stock pro rata based on the number of common stock held by each such holder
Common Stock
As of December 31, 2014, the Company has authorized 22,700,744 common stock, of which 7,633,333 common stock were issued and outstanding. As of December 31, 2013, the Company has authorized 22,700,744 common stock, of which 9,000,000 common stock were issued and outstanding.
During the year ended December 31, 2014, the Company repurchased 1,366,667 from a founder of the Company for $273,333, which represented $0.20 per share which was the fair value of each share of common stock at the time.
Equity Incentive Plan
In August 2011, we adopted the BitYota 2011 Long-Term Stock Incentive Plan (the “Plan”), which have a total of 1,600,000 shares of common stock authorized for issuance under the Plan as of December 31, 2014. As of that date, 106,719 of stock remained available for issuance under the Plan. Incentive stock options may be granted to employees at exercise prices not lower than the fair value of the stock at the date of grant as determined by the board of directors. For incentive stock options granted to a person who, at the time of the grant, owns stock representing more than 10% of the total combined voting power of all classes of stock of the Company or any parent or subsidiary, the per-share exercise price must be no less than 110% of the fair value on the date of the grant as determined by the board of directors, and the exercise period of such grants will be five
years. There were no incentive stock options granted to a person representing more than 10% of the total combined voting power of all classes of stock of the Company or any parent or subsidiary during the year ended December 31, 2014 or 2013.
Options granted under the Plan vest at a rate determined by the board of directors and will expire no later than 10 years from the date of grant. Options granted to newly hired employees typically vest over four years with 25% vesting after one year and 75% vesting ratably over the following 36 months. Retention grants to existing employees typically vest ratably over 48 months. The Plan allows for the issuance of restricted common stock upon early exercise of unvested stock options subject to the repurchase right of the Company. The repurchase right lapses in accordance with the vesting schedule of the original option
A summary of activity under the Plan for the years ended December 31, 2014 and 2013, is presented as follows:
|
| | | | | | | | | | | | | |
| 2014 | | 2013 |
| Shares | | Weighted Average Exercise Price Per Share | | Shares | | Weighted Average Exercise Price Per Share |
Outstanding at beginning of the year | 833,631 |
| | $ | 0.26 |
| | 554,673 |
| | $ | 0.26 |
|
Granted | 1,054,650 |
| | 0.20 |
| | 423,958 |
| | 0.26 |
|
Exercised | — |
| | — |
| | — |
| | — |
|
Expired | — |
| | — |
| | — |
| | — |
|
Forfeited | (395,000 | ) | | 0.25 |
| | (145,000 | ) | | 0.26 |
|
Outstanding at end of year | 1,493,281 |
| | $ | 0.22 |
| | 833,631 |
| | $ | 0.26 |
|
Exercisable at end of the year | 276,129 |
| | $ | 0.26 |
| | 158,634 |
| | $ | 0.26 |
|
Aggregate intrinsic value represents the difference between the Company’s estimated fair value of its common stock and the exercise price of outstanding in-the-money options.
In connection with the grants of stock options to employees under the Plan, the Company recorded $39,573 and $19,337 of stock-based compensation for the years ended December 31, 2014 and December 31, 2013, respectively.
As of December 31, 2014, there was approximately $105,945 of total unrecognized compensation cost, related to outstanding employee stock options that is expected to be recognized over a weighted-average period of 3.1 years
The fair value of each option granted, was estimated using the Black Scholes Merton option-pricing model and the following assumptions:
|
| | | | | |
| December 31, 2014 | | December 31, 2013 |
Expected volatility | 49.0% |
| | 50.0% |
|
Expected dividend yield | — | % | | — | % |
Risk-free interest rate | 2.2 | % | | 1.8 | % |
Expected term (years) | 6.08 |
| | 6.08 |
|
8. Subsequent Events
Our management evaluated all subsequent events from the date of the balance sheet through November 6, 2015, which represents the date when these financial statements were issued.
In June of 2015, the Company drew down an additional $1.5 million on its term loan.
On August 21, 2015 certain assets of BitYota, including the assembled workforce, were sold to LifeLock, Inc. under an Asset Purchase Agreement for $12.8 million. The proceeds of the sale were used to pay the outstanding balance of the Company's term loan and to return the original capital of the Seed and Series A Preferred Stockholders
Exhibit 99.2
BitYota, Inc.
Unaudited Condensed Financial Statements as of
June 30, 2015 and December 31, 2014 and for
the Six Months Ended June 30, 2015 and 2014
BITYOTA, INC.
UNAUDITED CONDENSED FINANCIAL STATEMENTS
TABLE OF CONTENTS
BITYOTA, INC.
CONDENSED BALANCE SHEETS
|
| | | | | | | |
| June 30, 2015 | | December 31, 2014 |
Assets | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 3,877,529 |
|
| $ | 4,389,713 |
|
Trade and other receivables, net | 67,793 |
|
| 142,700 |
|
Prepaid expenses and other current assets | 124,004 |
|
| 96,542 |
|
Total current assets | 4,069,326 |
|
| 4,628,955 |
|
Property and equipment, net | 58,539 |
|
| 64,836 |
|
Total assets | $ | 4,127,865 |
|
| $ | 4,693,791 |
|
Liabilities and stockholders’ equity | |
| |
Current liabilities: | |
| |
Accounts payable | $ | 66,661 |
|
| $ | 95,222 |
|
Accrued expenses and other liabilities | 238,435 |
|
| 175,186 |
|
Deferred revenue | 15,880 |
|
| 10,980 |
|
Total current liabilities | 320,976 |
|
| 281,388 |
|
Long-term debt | 3,000,000 |
|
| 1,498,750 |
|
Total liabilities | 3,320,976 |
|
| 1,780,138 |
|
Commitments and contingencies |
|
|
|
Convertible preferred stock: |
|
|
|
Series Seed: $0.72 par value, 2,881,940 authorized, issued and outstanding | 2,074,997 |
|
| 2,074,997 |
|
Series A: $1.745 par value, 6,302,998 authorized, 5,729,998 issued and outstanding | 9,999,993 |
|
| 9,999,993 |
|
Stockholders’ deficit: | |
| |
Common stock, $0.0001 par value, 22,700,744 authorized and 7,633,335 issued and outstanding at June 30, 2015 and December 31, 2014 | 754 |
|
| 754 |
|
Additional paid-in capital | 83,969 |
|
| 62,766 |
|
Accumulated deficit | (11,352,824 | ) |
| (9,224,857 | ) |
Total stockholders’ deficit | (11,268,101 | ) |
| (9,161,337 | ) |
Total liabilities, convertible preferred stock, and stockholders’ deficit | $ | 4,127,865 |
|
| $ | 4,693,791 |
|
See accompanying notes to condensed financial statements.
BITYOTA, INC.
CONDENSED STATEMENTS OF OPERATIONS
|
| | | | | | | |
| For the Six Months Ended June 30, |
| 2015 | | 2014 |
Revenue | $ | 70,037 |
| | $ | 149,542 |
|
Costs and expenses: | | | |
Cost of services | 28,107 |
| | 64,870 |
|
Sales and marketing | 82,484 |
| | 50,694 |
|
Technology and development | 1,892,829 |
| | 1,879,375 |
|
General and administrative | 157,124 |
| | 103,914 |
|
Total costs and expenses | 2,160,544 |
| | 2,098,853 |
|
Loss from operations | (2,090,507 | ) | | (1,949,311 | ) |
Other income (expense): | | | |
Interest income | 457 |
| | 1,466 |
|
Interest expense | (37,917 | ) | | — |
|
Total other income (expense) | (37,460 | ) | | 1,466 |
|
Loss before income taxes | (2,127,967 | ) | | (1,947,845 | ) |
Income tax expense | — |
| | — |
|
Net Loss | $ | (2,127,967 | ) | | $ | (1,947,845 | ) |
See accompanying notes to condensed financial statements.
BITYOTA, INC.
CONDENSED STATEMENTS OF CASH FLOWS
|
| | | | | | | |
| For the Six Months Ended June 30, |
| 2015 | | 2014 |
Operating activities | | | |
Net loss | $ | (2,127,967 | ) | | $ | (1,947,845 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | | | |
Depreciation and amortization | 16,871 |
| | 8,563 |
|
Share-based compensation | 21,203 |
| | 18,092 |
|
Change in operating assets and liabilities: | | | |
Trade and other receivables | 74,907 |
| | (82,522 | ) |
Prepaid expenses and other current assets | (27,462 | ) | | (6,629 | ) |
Accounts payable | (28,561 | ) | | 11,345 |
|
Accrued expenses and other liabilities | 63,249 |
| | 4,690 |
|
Deferred revenue | 4,900 |
| | 6,271 |
|
Net cash used in operating activities | (2,002,860 | ) | | (1,988,035 | ) |
Investing activities | | | |
Acquisition of property and equipment | (10,574 | ) | | (28,444 | ) |
Net cash used in investing activities | (10,574 | ) | | (28,444 | ) |
Financing activities | | | |
Proceeds from debt issuance | 1,501,250 |
| | — |
|
Net cash provided by financing activities | 1,501,250 |
| | — |
|
Net decrease in cash and cash equivalents | (512,184 | ) | | (2,016,479 | ) |
Cash and cash equivalents at beginning of period | 4,389,713 |
| | 7,017,679 |
|
Cash and cash equivalents at end of period | $ | 3,877,529 |
| | $ | 5,001,200 |
|
See accompanying notes to condensed financial statements.
BITYOTA, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
AS OF AND FOR THE PERIOD ENDED JUNE 30, 2015
We offer the first ever MPP Data Warehouse Service designed and built from the ground up to deliver high performance computing using virtual machines in the public cloud. We were incorporated in Delaware in August 2011 and are headquartered in Mountain View, California.
2. Basis of Presentation and Use of Estimates
Basis of Presentation
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP).
The accompanying unaudited condensed financial statements as of June 30, 2014 and for the six month periods ended June 30, 2015 and 2014 are unaudited. The unaudited condensed financial statements include all adjustments, consisting of normal recurring adjustments, which the Company considers necessary for a fair presentation of the financial position and the results of operations for those periods. The condensed financial statements and footnotes have not been reviewed by an independent auditor.
Certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s December 31, 2014 audited financial statements. Operating results for the six month period ended June 30, 2015 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 2015.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires us to make certain estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience, current business factors, and various other assumptions that we believe are necessary to consider to form a basis for making judgments about the carrying values of assets and liabilities, the recorded amounts of revenue and expenses, and the disclosure of contingent assets and liabilities. We are subject to uncertainties such as the impact of future events; economic, environmental, and political factors; and changes in our business environment; therefore, actual results could differ from these estimates. Accordingly, the accounting estimates used in the preparation of our financial statements will change as new events occur, as more experience is acquired, as additional information is obtained, and as our operating environment changes. We make changes in estimates when circumstances warrant. We reflect such changes in estimates and refinements in estimation methodologies in reported results of operations. If material, we disclose the effects of changes in estimates in the notes to the financial statements. Significant estimates and assumptions affect the following: the carrying value of long-lived assets; the amortization period of long-lived assets; valuation of common stock; the provision for income taxes and related deferred tax accounts, and realizablity of deferred tax assets; certain accrued expenses; contingencies, and the value attributed to employee stock options and other stock-based awards.
We are also subject to the risks associated with a loss generating entity, including the need to further develop its technology, operations, and sales and marketing channels to attain profitability. Successful development of our products and services and, ultimately, the attainment of profitable operations, are dependent upon future events, including its ability to grow our customer base, and develop strategic alliances.
3. Summary of Significant Accounting Policies
There have been no material changes to our significant accounting policies as compared to the significant accounting policies described in our audited financial statements for the year ended December 31, 2014.
4. Commitments and Contingencies
There was no material change to the commitments and contingencies as disclosed in the audited financial statements for the year ended December 31, 2014.
From time to time, we may become involved in claims and other legal matters arising in the ordinary course of business. We investigate these claims as they arise. Although claims are inherently unpredictable, we currently are not aware of any matters that may have a material adverse effect on our business, financial position, results of operations or cash flows.
5. Financing Arrangements
On November 20, 2014, we entered into a loan and security agreement, or the Loan Agreement, with Silicon Valley Bank. The Loan Agreement provides for a term loan of up to $3 million which can be borrowed at any time prior to September 30, 2015. The term loan has a maturity date of December 1, 2018, with all outstanding principal amounts due on maturity date.
Borrowings under the Loan Agreement bear interest at a per annum rate equal to Prime Rate plus 1.75%. The interest rate increases or decreases when Prime Rate changes.
We have the right to prepay our borrowings under the Loan Agreement from time to time in whole or in part, without premium or penalty, subject to the procedures set forth in the Loan Agreement.
All of our obligations under the Loan Agreement are secured by all our personal property with the exception of our intellectual property.
The Loan Agreement does not require us to maintain certain financial covenants.
6. Stockholders Equity
Presentation
The par value of our convertible preferred stock and common stock is $0.0001 per share. Amounts reported in the accompanying balance sheet for such preferred stock and common stock include the additional paid-in capital associated with each respective series. Both series' of Preferred Stock contain deemed liquidation provisions which can be triggered outside the company’s control, and accordingly, both series' of Preferred Stock are presented in mezzanine equity.
Convertible Preferred Stock
The rights, preferences, and privileges of our Seed and Series A preferred stock as of June 30, 2015 are as follows:
Dividend
Holders of Series Seed and Series A convertible preferred stock are entitled to receive noncumulative dividends at a pro rata basis, based on the original issuance prices of $0.72 and $1.7452 per share, respectively, subject in each case to appropriate adjustment in the event of any stock dividend, stock bonus issue, stock split, subdivision, combination, consolidation, or similar recapitalization with respect to the respective series of preferred stock plus an additional amount on “as converted” to common share basis when, as, and if declared by the board of directors. Holders of Series A preferred stock have a priority of dividends payments over holders of Series Seed. No dividends on preferred stock were declared by the Board for the six month period ended June 30, 2015 or 2014.
Voting
In general, holders of preferred stock shall be entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter.
The consent of a majority of the preferred stock holders voting separately as a class and on as-converted basis is required to liquidate, dissolve, or wind-up the business and affairs of the Company, effect any merger or consolidation or any Deemed Liquidation Event of consent to any of the foregoing.
The consent of a majority of the Series A preferred stock holders voting separately as a class ) is required to effect the following: (a) amend, alter or repeal any provision of the Certificate of Incorporation or Bylaws of the Company; (b) authorizing or creating a new class of equity securities with rights that are senior to or on parity with any series of preferred stock; (c) increasing the authorized number of preferred stock or any series of preferred stock; (d) purchasing, redeeming, paying dividends on, or make distributions on equity securities other than certain enumerated exceptions; (e) creation or issuance of a debt security; (f) create or own stock in any non-wholly owned subsidiary; (g) increase or decrease the authorized number of directors constituting the Board of Director; (h) increase the number of shares of Common Stock authorized for issuance under the Company's stock incentive plan; or (i) create, sell or dispose of any subsidiary or joint venture, or make any other investment in or acquisition of any other person or entity.
Conversion
Each preferred share is convertible, at the option of the holder, at any time, and without the payment of additional consideration by the holder, into such number of fully paid and nonassessable common stock as is determined by dividing the original issue price for such series of preferred stock by the applicable conversion price in effect at the time of conversion. The conversion prices for the Series Seed and Series A preferred stock are its respective original issue prices, subject to adjustments for certain events. The preferred stock will also be converted automatically into stock of common stock immediately prior to an initial
public offering with aggregate proceeds of at least $40 million or upon the date specified by written consent of holders of a majority of the outstanding preferred stock on an as-converted basis.
Liquidation
In the event of any liquidation, dissolution, or winding up of the Company, including a merger, acquisition, or sale of assets, as defined, the holders of Series A preferred stock are entitled to receive an amount per share to the greater of (i) Series A original issue price plus any declared but unpaid dividends or (ii) such amount per share as would have been payable had all Series A preferred stock been converted into common stock immediately prior to such deemed liquidation event. If upon any such deemed liquidation event, the assets of the Company available for distribution to stockholders of the Company shall be insufficient to pay the holders of Series A preferred stock the full amount to which they shall be entitled, the holders of Series A preferred stock shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts, which would otherwise be payable in respect of the Series A preferred stock held by them upon such distribution if all amounts payable on or with respect to such stock were paid in full.
After distributions have been made to all holders of Series A preferred stock in full, the holders of Series Seed preferred stock are entitled to receive an amount per share to the greater of (i) the respective Series Seed original issue prices plus any declared but unpaid dividends or (ii) such amount per share as would have been payable had all Series Seed preferred stock been converted into common stock immediately prior to such deemed liquidation event. If the assets of the Company available for distribution to stockholders shall be insufficient to pay the holders of Series Seed preferred stock the full amount to which be entitled, the holders of Series Seed preferred stock shall share ratably in any distribution of the remaining assets available for distribution in proportion to the respective amounts, which would otherwise be payable in respect of the Series Seed preferred stock held by them upon such distribution if all amounts payable on or with respect to such stock were paid in full.
After the payment in full of all preferential amounts required to be paid to the holders of preferred stock, the remaining assets of the Company available for distribution to stockholders shall be distributed among the holders of common stock pro rata based on the number of common stock held by each such holder
Common Stock
As of June 30, 2015 , the Company has authorized 22,700,744 common stock, of which 7,633,333 common stock were issued and outstanding. As of December 31, 2013, the Company has authorized 22,700,744 common stock, of which 9,000,000 common stock were issued and outstanding.
7. Subsequent Events
On August 21, 2015 certain assets of BitYota, including the assembled workforce, were sold to LifeLock, Inc. under an Asset Purchase Agreement for $12.8 million. The proceeds of the sale were used to pay the outstanding balance of the Company's term loan and to return the original capital of the Seed and Series A Preferred Stockholders
Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined statement of operations for the year ended December 31, 2014 and for the six months ended June 30, 2015 presents the results of operations of LifeLock as if LifeLock’s acquisition of BitYota had been consummated on January 1, 2014.
The historical financial information has been adjusted to give effect to pro forma events that are directly attributable to the acquisition and factually supportable. Our unaudited pro forma condensed combined financial statements and explanatory notes present how our financial statements may have appeared had the businesses actually been combined as of January 1, 2014. The unaudited pro forma condensed combined financial statements show the impact on the combined statements of operations under the purchase method of accounting under Financial Accounting Standards Board ASC 805, Business Combinations, with LifeLock treated as the acquirer. Under the purchase method of accounting, the total purchase price is allocated to the assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. The excess of the purchase price over the amounts assigned to tangible or intangible assets acquired and liabilities assumed is recorded as goodwill.
The following unaudited pro forma condensed combined financial statements are presented for illustrative purposes only and do not purport to reflect the historical results that would have been obtained had LifeLock and BitYota been a combined company during the periods presented or the results the combined company may achieve in future periods.
The unaudited pro forma condensed combined financial information is derived from and should be read in conjunction with the historical financial statements and related notes included elsewhere in this Form 8K/A and our historical filings.
The following pro forma financial statements should be read in conjunction with:
• the accompanying notes to the pro forma financial statements;
• the consolidated financial statements of LifeLock as of and for the periods ended June 30, 2015 and December 31, 2014 which were previously filed with the Securities and Exchange Commission; and
• the financial statements of BitYota as of and for the periods ended June 30, 2015 and December 31, 2014 contained in this Form 8-K/A.
PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2015
(UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
|
| | | | | | | | | | | | | | | | |
| | | | | | | |
| LifeLock, Inc. | | BitYota Inc. | | Adjustments | | Footnotes | | Pro Forma Combined Entity |
Revenue: | | | | | | | | | |
Consumer revenue | $ | 266,530 |
| | $ | 70 |
| | | | | | $ | 266,600 |
|
Enterprise revenue | 12,835 |
| | — |
| | | | | | 12,835 |
|
Total revenue | 279,365 |
| | 70 |
| | | | | | 279,435 |
|
Cost of services | 69,482 |
| | 28 |
| | | | | | 69,510 |
|
Gross profit | 209,883 |
| | 42 |
| | | | | | 209,925 |
|
Costs and expenses: | | | | | | | | | |
Sales and marketing | 146,620 |
| | 82 |
| | | | | | 146,702 |
|
Technology and development | 33,532 |
| | 1,893 |
| | | | | | 35,425 |
|
General and administrative | 39,831 |
| | 157 |
| | | | | | 39,988 |
|
Amortization of acquired intangible assets | 4,167 |
| | — |
| | | | | | 4,167 |
|
Total costs and expenses | 224,150 |
| | 2,132 |
| | | | | | 226,282 |
|
Loss from operations | (14,267 | ) | | (2,090 | ) | | | | | | (16,357 | ) |
Other income (expense): |
|
| |
|
| | | | | | |
Interest expense | (176 | ) | | (38 | ) | | 38 |
| | (A) | | (176 | ) |
Interest income | 279 |
| | — |
| | | | | | 279 |
|
Other, net | (183 | ) | | — |
| | | | | | (183 | ) |
Total other income (expense) | (80 | ) | | (38 | ) | | | | | | (80 | ) |
Loss before income taxes | (14,347 | ) | | (2,128 | ) | | | | | | (16,437 | ) |
Income tax benefits | (5,709 | ) | | — |
| | | | | | (5,709 | ) |
Net loss | $ | (8,638 | ) | | $ | (2,128 | ) | | | | | | $ | (10,728 | ) |
Net loss per share |
|
| |
|
| | | | | | |
Basic | $ | (0.09 | ) | | | | | | | | $ | (0.11 | ) |
Diluted | $ | (0.09 | ) | | |
| | | | | | $ | (0.11 | ) |
Weighted-average common shares outstanding used in computing net loss per share: | | | | | | | | | |
Basic | 94,314 |
| | | | | | | | 94,314 |
|
Diluted | 94,314 |
| | | | | | | | 94,314 |
|
PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2014
(UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
|
| | | | | | | | | | | | | | | |
| | | | | | | |
| LifeLock, Inc. | | BitYota Inc. | | Adjustments | | Footnotes | | Pro Forma Combined Entity |
Revenue: | | | | | | | | | |
Consumer revenue | $ | 449,193 |
| | $ | 378 |
| | | | | | $ | 449,571 |
|
Enterprise revenue | 26,823 |
| | — |
| | | | | | 26,823 |
|
Total revenue | 476,016 |
| | 378 |
| | | | | | 476,394 |
|
Cost of services | 120,422 |
| | 136 |
| | | | | | 120,558 |
|
Gross profit | 355,594 |
| | 242 |
| | | | | | 355,836 |
|
Costs and expenses: | | | | | | | | | |
Sales and marketing | 213,984 |
| | 93 |
| | | | | | 214,077 |
|
Technology and development | 50,973 |
| | 3,587 |
| | | | | | 54,560 |
|
General and administrative | 75,673 |
| | 336 |
| | | | | | 76,009 |
|
Amortization of acquired intangible assets | 8,898 |
| | — |
| | | | | | 8,898 |
|
Total costs and expenses | 349,528 |
| | 4,016 |
| | | | | | 353,544 |
|
Loss from operations | 6,066 |
| | (3,774 | ) | | | | | | 2,292 |
|
Other income (expense): |
|
| |
|
| | | | | | |
Interest expense | (353 | ) | | — |
| | | | | | (353 | ) |
Interest income | 281 |
| | 2 |
| | | | | | 283 |
|
Other, net | (137 | ) | | — |
| | | | | | (137 | ) |
Total other income (expense) | (209 | ) | | 2 |
| | | | | | (207 | ) |
Loss before income taxes | 5,857 |
| | (3,772 | ) | | | | | | 2,085 |
|
Income tax benefits | 3,362 |
| | 1 |
| | | | | | 3,363 |
|
Net income (loss) | $ | 2,495 |
| | $ | (3,773 | ) | | | | | | $ | (1,278 | ) |
Net loss per share |
|
| |
|
| | | | | | |
Basic | $ | 0.03 |
| | | | | | | | $ | (0.01 | ) |
Diluted | $ | 0.03 |
| | |
| | | | | | $ | (0.01 | ) |
Weighted-average common shares outstanding used in computing net loss per share: | | | | | | | | | |
Basic | 92,733 |
| | | | | | | | 92,733 |
|
Diluted | 99,102 |
| | | | | | | | 92,733 |
|
PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEET
AS AT JUNE 30, 2015
(UNAUDITED)
(THOUSANDS OF DOLLARS)
|
| | | | | | | | | | | | | | | | | |
| | | | | | | |
| LifeLock, Inc. | | BitYota Inc. | | Adjustments | | Footnotes | | Pro Forma Combined Entity |
Assets | | | | | | | | | |
Current assets: | | | | | | | | | |
Cash and cash equivalents | $ | 156,029 |
| | $ | 3,877 |
| | $ | (15,916 | ) | | (B) | | $ | 143,990 |
|
Marketable securities | 169,923 |
| | — |
| | | | | | 169,923 |
|
Trade and other receivables, net | 11,362 |
| | 68 |
| | | | | | 11,430 |
|
Deferred tax assets, net | 26,952 |
| | — |
| | | | | | 26,952 |
|
Prepaid expenses and other current assets | 8,494 |
| | 124 |
| | | | | | 8,618 |
|
Total current assets | 372,760 |
| | 4,069 |
| | | | | | 360,913 |
|
Property and equipment, net | 24,128 |
| | 58 |
| | | | | | 24,186 |
|
Goodwill | 159,342 |
| | — |
| | 8,975 |
| | (C) | | 168,317 |
|
Intangible assets, net | 34,148 |
| | — |
| | | | | | 34,148 |
|
Deferred tax assets, net – non-current | 22,494 |
| | — |
| | | | | | 22,494 |
|
Other non-current assets | 9,815 |
| | — |
| | | | | | 9,815 |
|
Total assets | $ | 622,687 |
| | $ | 4,127 |
| | | | | | $ | 619,873 |
|
Liabilities and stockholders’ equity | | | | | | | | | |
Current liabilities: | | | | | | | | | |
Accounts payable | $ | 18,881 |
| | $ | 67 |
| | | | | | $ | 18,948 |
|
Accrued expenses and other liabilities | 73,924 |
| | 238 |
| | | | | | 74,162 |
|
Deferred revenue | 179,656 |
| | 16 |
| | (16 | ) | | (D) | | 179,656 |
|
Total current liabilities | 272,461 |
| | 321 |
| | | | | | 272,766 |
|
Long term debt | — |
| | 3,000 |
| | (3,000 | ) | | (E) | | — |
|
Other non-current liabilities | 7,082 |
| | — |
| | | | | | 7,082 |
|
Total liabilities | 279,543 |
| | 3,321 |
| | | | | | 279,848 |
|
Commitments and contingencies | | | | | | | | | |
Stockholders’ equity: | | | | | | | | | |
Common stock | 95 |
| | — |
| | | | | | 95 |
|
Preferred stock | — |
| | 12,075 |
| | (12,075 | ) | | (F) | | — |
|
Additional paid-in capital | 514,934 |
| | 84 |
| | (84 | ) | | (F) | | 514,934 |
|
Accumulated other comprehensive loss | (194 | ) | | — |
| | | | | | (194 | ) |
Accumulated deficit | (171,691 | ) | | (11,353 | ) | | 8,234 |
| | (F) | | (174,810 | ) |
Total stockholders’ equity | 343,144 |
| | 806 |
| | | | | | 340,025 |
|
Total liabilities and stockholders’ equity | $ | 622,687 |
| | $ | 4,127 |
| | | | | | $ | 619,873 |
|
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Note 1 – Basis of Pro Forma Presentation
On August 21, 2015, LifeLock acquired certain assets of BitYota for a total purchase price of $12.8 million in cash.
The pro forma statements of operations for the six months ended June 30, 2015 and for the year ended December 31, 2014 give effect to the acquisition as if it were completed on January 1, 2014. The pro forma balance sheet as of June 30, 2015 gives effect to the acquisition as if it were completed on June 30, 2015.
The pro forma financial statements have been derived from the historical consolidated financial statements of LifeLock and historical financial statements of BitYota. Assumptions and estimates underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with the pro forma financial statements. Since the pro forma financial statements have been prepared based upon preliminary estimates, the final amounts recorded at the date of the acquisition may differ materially from the information presented. These estimates are subject to change pending further review of the assets acquired and liabilities assumed.
The acquisition is reflected in the pro forma financial statements as being accounted for based on the guidance provided by accounting standards for business combinations. Under the purchase method of accounting, the total estimated purchase price is allocated as described in Note 2. In accordance with accounting guidance for business combinations, the assets acquired and the liabilities assumed have been measured at fair value. The fair value measurements utilize estimates based on key assumptions of the acquisition, and historical and current market data. The pro forma adjustments included herein may be revised as additional information becomes available and as additional analysis is performed. The final purchase price allocation will be determined after the acquisition is completed and the final amounts recorded may differ materially from the information presented. The pro forma financial statements do not reflect the effect of any regulatory actions that may impact the pro forma financial statements when the acquisition is completed.
The pro forma financial statements include adjustments to repay indebtedness of $3 million owed by BitYota. The amounts utilized in determining the pro forma adjustments are also set forth in Note 2.
For the purpose of measuring the estimated fair value of the assets acquired and liabilities assumed, LifeLock has applied the accounting guidance for fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Note 2. Preliminary Purchase Price Allocation; Funding Sources and Uses
Preliminary Purchase Price Allocation
We reviewed all identifiable tangible and intangible assets acquired and determined that any fair value was immaterial based on the information available as of the acquisition date. As a result we preliminarily determined that the entire purchase price of acquired assets will be assigned to goodwill within our consumer segment, as the primary asset acquired was the assembled workforce, a team with expertise in the development of data-based products, who could use their ability to develop new products within our consumer segment.
Funding Sources and Uses
The acquisition was funded out of our cash reserves.
Note 3 – Pro Forma Adjustments
(A) This pro forma adjustment represents the decrease in interest expense on the long term debt of BitYota which was repaid on acquisition.
(B) This pro forma adjustment represents the cash paid to acquire BitYota of $12.8 million and $3.1 million of acquisition related expenses.
(C) This pro forma adjustment reflects the preliminary estimate of the excess of the purchase price paid over the fair value of BitYota assets acquired.
(D) This pro forma adjustment is to remove the deferred revenue which will not be recognized in the combined entity.
(E) This pro forma adjustment reflects the decrease in long term debt of BitYota which was repaid on acquisition.
(F) These pro forma adjustments reflect the elimination of reflects the elimination of $0.8 million of BitYota historical equity balances, it also represents an adjustment to retained earnings of $3.1 million in transaction costs to reflect the impact of accounting guidance to business combinations which requires these costs be expensed as incurred.
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